Eve of Destruction

by foneman30 | September 7, 2008 at 12:40 pm

187 views | 4 Recommendations | 5 comments

US Economy Collapsing

McCain’s Nevada bank fails

Regulators on Friday shut down Silver State Bank, saying the Nevada bank failed because of losses on loans, mainly in commercial real estate and land development.
Andrew K. McCain, son of Republican presidential nominee John McCain, sat on the boards of Silver State Bank and of its parent, Silver State Bancorp. Corporate filings with the Securities and Exchange Commission show that he resigned in July, citing "personal reasons,"
The younger McCain also was a member of the bank's audit committee, responsible for oversight of the company's accounting. McCain's position on the Silver State board and departure were first reported Friday by The Wall Street Journal online.
It was the 11th failure this year of a federally insured bank. The 11 failures, so far, compare with three for all of 2007. Federal banking officials have said that more banks are in danger of collapse. Officials expect turbulence in the banking industry to continue well into next year, with more institutions appearing on the FDIC's internal list of troubled banks.
Mae and Mac Manipulated
The Treasury Department announced, Sunday, a plan to take over and recapitalize collapsing home mortgage giants Fannie Mae and Freddie Mac, in one of the biggest government rescues in U.S. history.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Treasury Secretary Henry Paulson said.
The bailout involves total assets that would dwarf the savings and loan rescue in the 1980s that shook the banking sector to its core. Fannie and Freddie hold $1.5 trillion in direct debt, guarantees on what could be as large as $5 trillion, and off-balance sheet obligations that could reach $3 trillion, according to recent estimates from Ladenburg Thalmann & Co.
Word of the Treasury Department takeover first came out late Friday, and sent the shares of both companies plunging in after-hours trading. Fannie Mae gave up 25% of its value and Freddie Mac fell by 20%. Those losses only added to the misery that has already wiped out approximately 80% of the companies' share values this year.
The rapid downfall of Fannie (FNM):and Freddie (FRE) echoes the collapse of Bear Stearns brokerage, and comes roughly one year after the global credit crisis erupted in the summer of 2007.
“These entities are so big and they're so tied into the housing market that it's probably true that we have to take steps to make sure they don’t just collapse," Democratic presidential nominee Barack Obama said at a rally in Terre Haute, Indiana. "Because the housing market, which is already weakened, would be in even worse shape it we didn't take some steps."
Separately, an economic adviser to Republican presidential hopeful Sen. John McCain said Paulson had briefed McCain on the situation over the phone on Saturday morning. The adviser, Douglas Holtz-Eakin, said the Arizona senator would support a short-term solution that would keep any trouble at the two companies from spreading further to financial markets. "Over the long haul he believes we should downsize and privatize them so that they're not a risk to the American taxpayer," he said.
The Mortgage Bankers Association reports a record 9.2 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June.
Employment Evaporates
Worried about the economy and their business prospects, employers cut payrolls by 84,000 in August, marking the eighth straight month of job losses in the United States. The economy needs to generate more than 100,000 new jobs per month for employment to remain stable. So far this year, 605,000 jobs have vanished — slightly less than the population of Alaska.
Unemployment rose from 5.7 percent in July to 6.1 percent in August, the Labor Department reported Friday. Such a sharp increase is usually a strong recession warning. It was the first time in five years the nation’s jobless rate rose above 6 percent.
The number of unemployed rose to 9.4 million in August, compared with 7.1 million a year ago. Economists predict more job losses ahead, pushing the unemployment rate to 7 percent by fall of 2009.
Presidential candidates Barack Obama and John McCain seized on the job figures to attack each other's economic proposals.
"The working men and women I meet every day are working harder for less," Obama said. He advocates tax cuts for working families and investment in road, bridges and other projects to lift the economy.
McCain vowed to "fight for those that lost their jobs, savings and real-estate investments." He said tax reductions for people and businesses, job training, and measures to promote trade will help ease the economic woes.
Richard Yamarone, economist at Argus Research, fears that the jobless rate will cause consumers and businesses to "move from a moderately concerned stage to outright fear" and reduce their spending even more.
"Mix business caution with consumer exhaustion and you have a recipe for a real recession," said Terry Connelly, dean of Golden Gate University's Ageno School of Business.
Housing, credit, and financial problems have shaken the economy. And the crisis shows no signs of improvement.
Frosty Future
Against this backdrop, a growing number of analysts predict the economy will jolt into reverse in the final three months of this year and possibly in the first three months of next year, meeting a classic definition of a recession.
The economy shrank late last year and barely budged at the start of this year. Growth picked up in the spring, thanks to brisk exports and the government's tax rebates; but, that rebound wasn't expected to last.
Slower foreign economy growth will cause exports to fall just as Americans are cutting spending as the benefits of tax rebates disappear.

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Emilio Lizardo

flagged this story as Good Stuff

at 15:19 on September 7th, 2008

foneman30, I like this story. It's good stuff.

Ahhh, there's nothing to worry about, really! Bush recently claimed the economy is in great shape !

See - feeling better already, right ?

DrMarty

flagged this story as Good Stuff

at 16:41 on September 7th, 2008

foneman30, I like this story. It's good stuff. Let's see...McCain's economic advisor said

"Over the long haul he (McCain) believes we should downsize and privatize them so that they're not a risk to the American taxpayer,"

What an idiot...which is not to say that Obama's economic advisor would say the same thing. If privatized, we'd never know the extent of the liability...and if they continue to play the same role, then privatized, the taxpayer would be reamed big time. This "privatization as the knee-jerk best" ideology must be smashed as incompetent. Problem is to find two economists that don't have their heads up their butts.

foneman30

at 19:44 on September 7th, 2008

Emilio, thx for the gs. I have some Freddie; would you like to buy it? {;-D

foneman30

at 19:48 on September 7th, 2008

Thx, DrMarty. There is a conservative element in American politics that faces the White House and bows to the Privatize Calf every Tuesday night at 20:30 EST.